Nations Must Prepare For Robots Destroying The Low-Skill Job Market

REUTERS/Sheng Li A robot delivers a dish to customers at a Robot Restaurant in the Heilongjiang province, China.

HAVING discussed some possible refuges for humans looking to keep working in a robot-dominated world, let's get to some real talk. It is certainly possible that technological progress will soon switch to augmenting the productivity and wages of less-skilled workers. But it's also possible, and maybe more probable, that it will not. And while there are many different kinds of "skill" out there, it seems reasonable to argue that workers in the top quartile or top half for educational attainment are also likely to be in the top half for other, non-cognitive skills that might be favoured in the future. So what might happen to workers in the bottom half of the skill spectrum?

One possibility, which I'll reiterate, is that a new development will come along that raises demand for their work. Another possibility is that labour demand for workers at the low end of the skill spectrum will vanish entirely. That seems a little improbable, but it's not entirely out of the question. Demand in today's economy for a typical 19th-century labourer—illiterate and innumerate among other disadvantages—would be about nil. Low skill workers could find themselves in such a situation, though it may be more realistic to say that today's economy wouldn't be possible in a world where large segments of the working age population resembled a 19th-century labourer. We'd be instead in a different, much poorer world, but one in which many of those workers continued to have jobs.

And so we arrive at a third possibility, in which economic growth is constrained by the fitness of the workforce, and there are severe distributional issues. In this world, less skilled workers face intense competition from hordes of other less skilled workers and from ever more capable and less costly robots. Wages of the unskilled stagnate or tumble as a result. It's possible, of course, that wage rates for even skilled workers might disappoint, while the return to capital rises ever higher. Whatever happens at the top, the bottom finds itself struggling to capture any of the benefits of productivity growth.

That creates a very difficult situation, because it so happens that modern economies continue to use wages as the primary means by which purchasing power is distributed. Really fast productivity growth might lead to tumbling costs for many different kinds of consumer goods, information, and possibly even health care. But people will still need incomes. Households will still need food and a roof over their heads, and society might even decide that they deserve more than that: that relative penury for huge segments of the population is bad for social stability, or even unjust.

If society wishes to avoid such an outcome, the only real option is redistribution and a lot of it. That, in turn, could be managed in a few ways. Society could make a go at raising the earnings potential of less skilled workers by investing heavily in education. That will strike many as the most attractive solution, but it is also one that will face limits. Not everyone can be educated to Google-engineer level.

More skilled or richer elements of society could effectively tax themselves by protecting certain job categories in order to maintain employment opportunities for the less skilled. So, driverless cars may soon be an operating reality. But society could pass laws banning or limiting AVs in order to protect certain jobs: taxi driver, for instance, or trucker. Depending on the size and organisation of less-skilled groups, that's conceivably a benefit they could vote themselves.

And then there are direct transfers. Society could simply say that every household deserves a minimum income or standard of living and transfer the necessary money or resources from haves to have-nots. Or, one might say, from makers to takers. While perhaps an unavoidable outcome to some extent, the implications are distressing. Rich individuals would certainly not be anxious to support a permanently jobless underclass, and it's not clear that much of society would relish a life of sitting around on the dole.

This sort of world is not so far-fetched, however. The "takers" in the 2012 election debate were not really takers for the most part. Some of those put in such a category are not of working age while others are members of the working poor, earning little and paying plenty to the public purse, though not in federal income tax. If wages continue to lag at the bottom, however, ever more workers may slip out of the labour force as the market wage for such labour slips below the reservation level. That reservation level has a few sources. Long-term disability insurance is one. Workers may go on state support via the criminal justice system. Or they may linger in dependancy on other family members: spouses, parents, or children.

The point is that "technological unemployment" may become an effective reality given lagging wages for less-skilled workers, sufficient to eliminate the incentive to find a job and given reasonable (though not particularly attractive) alternatives. It's not a certainty that things wll develop this way. But it's a realistic enough possibility that societies should begin thinking significantly about how to reform and improve their welfare states: to substantially upgrade education, to provide for the best possible work incentives, and to secure finances for the foreseeable future.

Technological progress sufficient to cause these kinds of dislocations should also generate overall economic gains large enough to make everyone better off. But just because everyone could be made better off by progress doesn't mean that everyone will be made better off. There must be an institutional framework in place to ensure that the gains from growth are shared.